-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JF7SJ+3SIJ8kaMI6NUAN3HHSxJMz7awelzkcdzt5zUQO2+yrhDzqQhOfzYvzRWsl AiWvXsvY7eDlc8m6ByBHDQ== 0000919607-02-000330.txt : 20021009 0000919607-02-000330.hdr.sgml : 20021009 20021009172530 ACCESSION NUMBER: 0000919607-02-000330 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020918 FILED AS OF DATE: 20021009 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WINN DIXIE STORES INC CENTRAL INDEX KEY: 0000107681 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 590514290 STATE OF INCORPORATION: FL FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03657 FILM NUMBER: 02785720 BUSINESS ADDRESS: STREET 1: 5050 EDGEWOOD CT CITY: JACKSONVILLE STATE: FL ZIP: 32224 BUSINESS PHONE: 9047835000 MAIL ADDRESS: STREET 1: 5050 EDWOOD CT CITY: JACKSONVILLE STATE: FL ZIP: 32254 FORMER COMPANY: FORMER CONFORMED NAME: WINN & LOVETT GROCERY CO DATE OF NAME CHANGE: 19671119 FORMER COMPANY: FORMER CONFORMED NAME: WINN & LOVETT GROCERY INC DATE OF NAME CHANGE: 19710927 10-Q 1 wd10q.txt INITIAL FILING ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 --------------------- FORM 10-Q (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 18, 2002 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to ____________________ Commission File Number 1-3657 --------------------- WINN-DIXIE STORES, INC. (Exact name of registrant as specified in its charter) Florida 59-0514290 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 5050 Edgewood Court, Jacksonville, Florida 32254-3699 (Address of principal executive offices) (Zip Code) (904) 783-5000 (Registrant's telephone number, including area code) Unchanged (Former name, former address and former fiscal year, if changed since last report) --------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No __ As of September 18, 2002, there were 140,764,410 shares outstanding of the registrant's common stock, $1 par value. ================================================================================ WINN-DIXIE STORES, INC. AND SUBSIDIARIES FORM 10-Q TABLE OF CONTENTS Part I: Financial Information Item 1. Financial Statements Page Condensed Consolidated Statements of Operations 1 (Unaudited), For the 12 Weeks Ended September 18, 2002 and September 19, 2001 Condensed Consolidated Balance Sheets 2 September 18, 2002 (Unaudited) and June 26, 2002 (Note A) Condensed Consolidated Statements of Cash Flows 3 (Unaudited), For the 12 Weeks Ended September 18, 2002 and September 19, 2001 Notes to Condensed Consolidated Financial Statements 4 - 14 (Unaudited) Item 2. Management's Discussion and Analysis of Financial 15 - 21 Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk 22 - 24 Item 4. Controls and Procedures 25 Part II: Other Information Item 1. Legal Proceedings 26 Item 2. Changes in Securities and Use of Proceeds 26 Item 3. Defaults Upon Senior Securities 26 Item 4. Submission of Matters to a Vote of Security Holders 26 Item 5. Other Information 27 Item 6. Exhibits and Reports on Form 8-K 27 Signatures 28 Certifications 29 - 30
Part I - Financial Information Item 1. Financial Statements WINN-DIXIE STORES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Dollar amounts in thousands except per share data For the 12 Weeks Ended September 18, 2002 September 19, 2001 ------------------ ------------------ Net sales $2,832,765 2,807,756 Cost of sales, including warehouse and delivery expenses 2,033,204 2,056,396 ---------- ---------- Gross profit on sales 799,561 751,360 Other operating and administrative expenses 729,833 685,972 ---------- ---------- Operating income 69,728 65,388 Interest expense, net 14,921 14,878 ---------- ---------- Earnings from continuing operations before income taxes 54,807 50,510 Income taxes 20,005 19,445 ---------- ---------- Net earnings from continuing operations 34,802 31,065 ---------- ---------- Discontinued operations (Note O) Loss from discontinued operations - (14,070) Income tax benefit - (5,416) ---------- ---------- Net loss from discontinued operations - (8,654) ---------- ---------- Net earnings $ 34,802 22,411 ========== ========== Basic earnings per share: Earnings from continuing operations $ 0.25 0.22 Loss from discontinued operations - (0.06) ---------- ---------- Basic earnings per share $ 0.25 0.16 ========== ========== Diluted earnings per share: Earnings from continuing operations $ 0.25 0.22 Loss from discontinued operations - (0.06) ---------- ---------- Diluted earnings per share $ 0.25 0.16 ========== ========== Dividends per share $ 0.05 0.17 ========== ========== Weighted average common shares outstanding - basic 140,357 140,281 ========== ========== Weighted average common shares outstanding - diluted 140,807 140,971 ========== ==========
See accompanying notes to condensed consolidated financial statements. 1 WINN-DIXIE STORES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS Dollar amounts in thousands except par value September 18, 2002 June 26, 2002 ------------------ ------------- ASSETS (Unaudited) (Note A) - ------ Current Assets: Cash and cash equivalents $ 77,432 227,846 Marketable securities 18,842 18,606 Trade and other receivables 115,258 116,154 Merchandise inventories less LIFO reserve of $218,873 ($215,873 as of June 26, 2002) 1,054,311 1,063,288 Prepaid expenses and other assets 44,541 53,934 Deferred income taxes 156,593 158,478 ----------- ----------- Total current assets 1,466,977 1,638,306 ----------- ----------- Cash surrender value of life insurance, net 11,559 16,197 Property, plant and equipment, net 953,473 966,752 Goodwill 87,808 87,808 Non-current deferred income taxes 109,196 113,291 Other assets, net 116,303 115,224 ----------- ----------- Total assets $ 2,745,316 2,937,578 =========== ========= LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Current Liabilities: Current portion of long-term debt $ 1,736 2,739 Current obligations under capital leases 3,464 3,471 Accounts payable 451,824 509,704 Reserve for insurance claims and self-insurance 94,535 98,450 Accrued wages and salaries 97,357 111,556 Accrued rent 143,961 144,597 Accrued expenses 154,975 174,805 Income taxes payable 46,858 64,582 ----------- ----------- Total current liabilities 994,710 1,109,904 ----------- ----------- Reserve for insurance claims and self-insurance 159,230 160,226 Long-term debt 440,584 540,612 Obligations under capital leases 23,992 24,787 Defined benefit plan 53,391 52,887 Lease liability on closed stores, net of current portion 171,457 180,785 Other liabilities 59,180 55,993 ----------- ----------- Total liabilities 1,902,544 2,125,194 ----------- ----------- Commitments and contingent liabilities (Notes I, J, L & P) Shareholders' Equity: Common stock $1 par value. Authorized 400,000,000 shares issued and outstanding 140,764,410 at September 18, 2002 and 140,592,009 at June 26, 2002 140,764 140,592 Retained earnings 705,598 676,322 Accumulated other comprehensive loss (3,590) (4,530) ----------- ----------- Total shareholders' equity 842,772 812,384 ----------- ----------- Total liabilities and shareholders' equity $ 2,745,316 2,937,578 =========== =========
See accompanying notes to condensed consolidated financial statements. 2 WINN-DIXIE STORES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Dollar amounts in thousands September 18, 2002 September 19, 2001 ------------------ ------------------ Cash flows from operating activities: Net earnings $ 34,802 22,411 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 37,979 39,877 Deferred income taxes 5,207 4,027 Defined benefit plan 504 1,235 Reserve for insurance claims and self-insurance (5,780) (1,623) Stock compensation plans 1,327 975 Change in operating assets and liabilities, net of effects from acquisitions: Trade and other receivables 896 (19,763) Merchandise inventories 8,977 30,028 Prepaid expenses and other assets 12,444 10,618 Accounts payable (52,751) (72,555) Income taxes payable 12,436 9,875 Other current accrued expenses (19,146) (23,228) --------- --------- Subtotal 36,895 1,877 Income taxes paid on company owned life insurance (52,002) - --------- --------- Net cash (used in) provided by operating activities (15,107) 1,877 --------- --------- Cash flows from investing activities: Purchases of property, plant and equipment, net (22,270) (12,845) (Increase) decrease in investments and other assets (4,228) 1,939 --------- --------- Net cash used in investing activities (26,498) (10,906) --------- --------- Cash flows from financing activities: Principal payments on long-term debt (101,031) (1,014) Principal payments on capital lease obligations (802) (755) Purchase of common stock (40) (30) Proceeds of sales under associates' stock purchase plan - 719 Dividends paid (7,030) (23,894) Other 94 (11,589) --------- --------- Net cash used in financing activities (108,809) (36,563) --------- --------- Decrease in cash and cash equivalents (150,414) (45,592) Cash and cash equivalents at beginning of year 227,846 121,061 --------- --------- Cash and cash equivalents at end of period $ 77,432 75,469 ========= ========= Supplemental cash flow information: Interest paid $ 7,896 9,972 Interest and dividends received $ 496 464 Income taxes paid $ 54,463 517
See accompanying notes to condensed consolidated financial statements. 3 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Dollar amounts in thousands except per share data, unless otherwise noted (A) Basis of Presentation: The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the 12 weeks ended September 18, 2002 are not necessarily indicative of the results that may be expected for the year ending June 25, 2003. The balance sheet at June 26, 2002 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Winn-Dixie Stores, Inc. and subsidiaries annual report on Form 10-K for the fiscal year ended June 26, 2002. The Condensed Consolidated Financial Statements include the accounts of Winn-Dixie Stores, Inc. and its subsidiaries, which operate as a major food retailer in twelve states and the Bahama Islands. Reference to the "Company" includes Winn-Dixie Stores, Inc. and all of its subsidiaries, collectively. (B) Cash and Cash Equivalents: Cash equivalents consist of highly liquid investments with maturity of three months or less when purchased. Cash and cash equivalents are stated at cost plus accrued interest, which approximates market. (C) Marketable Securities: Marketable securities consist principally of fixed income securities categorized as available-for-sale. Available-for-sale securities are recorded at fair value. Unrealized holding gains and losses, net of the related tax effect, are excluded from earnings and reported as a separate component of shareholders' equity until realized. A decline in the fair value of available-for-sale securities below cost that is deemed other than temporary is charged to earnings, resulting in the establishment of a new cost basis for the security. Realized gains and losses are included in earnings and are derived using the specific identification method for determining the cost of securities sold. (D) Inventories: Inventories are stated at the lower of cost or market. The "dollar value" last-in, first-out (LIFO) method is used to determine the cost of approximately 84% of inventories consisting primarily of merchandise in stores and distribution warehouses. Manufacturing, pharmacy and produce inventories are valued at the lower of first-in, first-out (FIFO), cost or market. Elements of cost included in manufacturing inventories consist of material, direct labor and plant overhead. 4 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Dollar amounts in thousands except per share data, unless otherwise noted (E) Revenue Recognition: Revenue is recognized at the point of sale for retail sales. Sales discounts are offered to customers at the time of purchase as part of the Company's Customer Reward Card program as well as other promotional events. All sales discounts are recorded as a reduction of sales at the time of purchase. Additionally, the Company offers awards to customers based on an accumulation of points as part of its Customer Reward Card program. The points accumulation and redemption occur within the same reporting period with no free or discounted products or services to be delivered in the future. Accordingly, the Company had no liability established for points redemption as of September 18, 2002. (F) Merchandise Cost: Vendor allowances and credits that relate to the Company's merchandising activities are recorded as a reduction of cost of sales as they are earned according to the underlying agreement with the vendor. Allowances consist primarily of promotional allowances, quantity discounts and payments under merchandising agreements. Amounts received under promotional or other merchandising allowance agreements that require specific performance are recognized when the performance is satisfied, the amount is fixed and determinable and the collection is reasonably assured. Lump sum payments received in advance of performance are recorded as deferred income in other liabilities, either current or non-current as appropriate, and recognized over the life of the agreement. (G) LIFO: Results for the quarter reflect a pre-tax LIFO inventory charge of $3.0 million in fiscal 2003 and 2002. If the FIFO method had been used for the current quarter, net earnings from continuing operations would have been $36.7 million, or $0.26 per diluted share, as compared with $32.9 million, or $0.23 per diluted share in the previous year. An actual valuation of inventory under the LIFO method can be made only at the end of each fiscal year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations must be based on management's estimates of expected year-end inventory levels and costs. Because these are subject to forces beyond management's control, interim results are subject to the final year-end LIFO inventory valuations. (H) Comprehensive Income: Comprehensive income differs from net income in the quarter due to changes in the fair value of the Company's interest rate swaps related to the cash flow hedge and marketable securities. Comprehensive income for the quarter ended was $35.7 million, or $0.25 per diluted share compared to $18.4 million, or $0.13 per diluted share in the previous year. 5 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Dollar amounts in thousands except per share data, unless otherwise noted (I) Debt: September 18, 2002 June 26, 2002 ------------------ ------------- 364-day $175,000 revolving credit facility due 2003; interest payable at LIBOR plus 2.50% $ - - Five-year $200,000 revolving credit facility due 2006; interest payable at LIBOR plus 2.50% - - Mortgage note payable with interest at 9.40% and monthly $22 principal and interest payments 1,403 1,434 and 10.0% of principal paid annually each October Six-year term loan due 2007; interest payable at LIBOR plus 2.75% and .25% of principal paid quarterly 145,000 246,000 8.875% senior notes due 2008; interest payable semiannually on April 1 and October 1 295,917 295,917 ------------------ ------------- Total 442,320 543,351 Less current portion 1,736 2,739 ------------------ ------------- Long-term portion $ 440,584 540,612 ================== =============
The senior secured credit facilities and senior unsecured notes contain certain covenants as defined in the credit agreement and indenture, as amended. The Company was in compliance with these covenants at September 18, 2002. During the quarter, the Company prepaid $100.0 million on the six-year term loan. In accordance with Statement of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No.13, and Technical Corrections" ("SFAS 145"), the unamortized debt issue cost of $2.6 million ($1.6 million net of tax) associated with the early extinguishment of the debt is recorded in continuing operations as interest expense. As of September 18, 2002, the Company had $52.0 million in outstanding letters of credit used to support inventory purchases and insurance obligations. The Company has a cash flow hedge on the six-year term loan due 2007. See Quantitative and Qualitative Disclosures About Market Risk for additional information. 6 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Dollar amounts in thousands except per share data, unless otherwise noted (I) Debt, continued: The Company entered into an interest rate swap agreement, designated as a fair value hedge as defined under SFAS 133, "Accounting for Derivative Instruments and Hedge Activities," with a notional amount totaling $300.0 million and a variable interest rate, which is fixed semi-annually on the first of April and October based on six-month LIBOR. This agreement was entered to exchange the fixed interest rate on the Company's 8.875% senior notes for a variable interest rate. In accordance with SFAS 133, changes in the fair value of the interest rate swap agreements offset changes in the fair value of the fixed rate debt due to changes in the market interest rate. Accordingly, the long-term debt on the Condensed Consolidated Balance Sheets as of September 18, 2002 decreased by $4.1 million, which reflected a decrease in the fair value of the debt. The corresponding increase in the hedge liability was recorded in other liabilities. The agreement is deemed to be a perfectly effective fair value hedge and therefore qualifies for the short-cut method of accounting under SFAS 133. As a result, no ineffectiveness is expected to be recognized in the Company's earnings associated with the interest rate swap agreement on the 8.875% senior notes. (J) Income Taxes: The provision for income taxes reflects management's best estimate of the effective tax rate expected for the fiscal year. The effective tax rate for fiscal years 2003 and 2002 is 36.5% and 38.5%, respectively. The Company has a reserve established for taxes and interest related to the company-owned life insurance (COLI) tax liability. In July 2002, the Company paid $52.0 million to the Internal Revenue Service from the reserve. Additional amounts, if any, will be paid after receiving a final assessment from the Internal Revenue Service and, in the opinion of management, will not have any additional material adverse impact on the Company's financial condition or results of operations. (K) Reclassification: Certain other prior year amounts may have been reclassified to conform to the current year's presentation. 7 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Dollar amounts in thousands except per share data, unless otherwise noted (L) Lease Liability on Closed Stores: The Company accrues for the obligation related to closed store locations based on the present value of expected future rental payments, net of sublease income. The following amounts are included in accrued rent and lease liability on closed stores, as of September 18, 2002: Lease Liability on Closed Stores ------------------ Balance at June 26, 2002 $ 264,386 Additions/adjustments 5,346 Utilization (24,171) ------------------ Balance at September 18, 2002 $ 245,561 ================== The additions/adjustments amount includes the effect on earnings from the accretion of the present value of the expected future rental payments, additional leases added to the accrual and adjustments due to the settlement of certain existing leases. The utilization amount includes payments made for rent and related costs and the buyout of eight leases. The lease liability on closed stores consist of $134.6 million related to restructure and $62.8 million related to the discontinued operations. The additions/adjustments and the utilization for restructure were $2.0 million and $10.1 million, respectively for the quarter. The current portion of the accrued balance at September 18, 2002 totals $74.1 million and is included in accrued rent. (M) Goodwill and Other Intangible Assets: Goodwill is not amortized but is tested for impairment, for each reporting unit, on an annual basis and between annual tests in certain circumstances. In accordance with the guidelines in Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), the Company determined it has one reporting unit. The Company performed an impairment review at September 18, 2002, and concluded that there were no necessary adjustments. 8 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Dollar amounts in thousands except per share data, unless otherwise noted (M) Goodwill and Intangible Assets, continued: Other intangible assets consist of a non-compete fee and the cost of purchasing pharmacy prescription files. The Company reassessed the useful lives of other intangible assets and determined the useful lives are appropriate in determining amortization expense. The balance, which is a component of other assets on the Condensed Consolidated Balance Sheets, as of September 18, 2002 is as follows: Other Intangible Assets ---------- Other intangible assets $ 7,461 Less: Accumulated amortization 2,831 ----------- Other intangible assets, net $ 4,630 =========== Amortization expense for other intangible assets for quarters ended September 18, 2002 and September 19, 2001 was $284 and $270, respectively. The estimated remaining amortization expense for each of the fiscal years subsequent to June 26, 2002 is as follows: Amortization Expense ------------ Remaining for year ended June 25, 2003 $ 922 For year ended June 30, 2004 1,153 For year ended June 29, 2005 1,099 For year ended June 28, 2006 410 For year ended June 27, 2007 103 Thereafter 943 ------------ $ 4,630 ============ 9 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Dollar amounts in thousands except per share data, unless otherwise noted (N) Guarantor Subsidiaries: During the second quarter of fiscal 2001, the Company filed a registration statement with the Securities and Exchange Commission to authorize the issuance of up to $1 billion in debt securities. The debt securities may be jointly and severally, fully and unconditionally guaranteed by substantially all of the Company's operating subsidiaries. The guarantor subsidiaries are 100% owned subsidiaries of the Company. Condensed consolidated financial information for the Company and its guarantor subsidiaries is as follows: WINN-DIXIE STORES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF OPERAIONS (Amounts in thousands) 12 Weeks ended September 18, 2002 Guarantor Parent Subsidiaries Eliminations Consolidated ------------ ------------ ------------ ------------ Net sales $ 1,276,536 1,556,229 - 2,832,765 Cost of sales 916,031 1,117,173 - 2,033,204 ------------ ----------- ------------ ------------ Gross profit 360,505 439,056 - 799,561 Other operating and administrative expenses 309,845 419,988 - 729,833 ------------ ----------- ------------ ------------ Operating income 50,660 19,068 - 69,728 Equity in earnings of consolidated subsidiaries 12,108 - (12,108) - Interest expense, net 14,921 - - 14,921 ------------ ----------- ------------ ------------ Earnings before income taxes 47,847 19,068 (12,108) 54,807 Income taxes 13,045 6,960 - 20,005 ------------ ----------- ------------ ------------ Net earnings $ 34,802 12,108 (12,108) 34,802 ============ =========== ============ ============
12 Weeks ended September 19, 2001 Guarantor Parent Subsidiaries Eliminations Consolidated ------------ ------------ ------------ ------------ Net sales $ 1,256,225 1,551,531 - 2,807,756 Cost of sales 924,202 1,132,194 - 2,056,396 ------------ ------------ ------------ ------------ Gross profit 332,023 419,337 - 751,360 Other operating and administrative expenses 304,154 381,818 - 685,972 ------------ ------------ ------------ ------------ Operating income 27,869 37,519 - 65,388 Equity in earnings of consolidated subsidiaries 14,421 - (14,421) - Interest expense, net 14,878 - - 14,878 ------------ ------------ ------------ ------------ Earnings from continuing operations before income taxes 27,412 37,519 (14,421) 50,510 Income taxes 5,001 14,444 - 19,445 ------------ ------------ ------------ ------------ Net earnings from continuing operations 22,411 23,075 (14,421) 31,065 Net loss from discontinued operations - (8,654) - (8,654) ------------ ------------ ------------ ------------ Net earnings $ 22,411 14,421 (14,421) 22,411 ============ ============ ============ ============
10 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Dollar amounts in thousands except per share data, unless otherwise noted (N) Guarantor Subsidiaries, continued: WINN-DIXIE STORES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEETS (Amounts in thousands) September 18, 2002 Guarantor Parent Subsidiaries Eliminations Consolidated ------------ ------------ ------------ ------------ Merchandise inventories $ 320,879 733,432 - 1,054,311 Other current assets 247,874 164,792 - 412,666 ------------ ------------ ------------ ------------ Total current assets 568,753 898,224 - 1,466,977 Property, plant and equipment, net 372,043 581,430 - 953,473 Other non-current assets 206,490 118,376 - 324,866 Investments in and advances to/from subsidiaries 845,762 - (845,762) - ------------ ------------ ------------ ------------ Total assets $ 1,993,048 1,598,030 (845,762) 2,745,316 ============ ============ ============ ============ Accounts payable $ 91,693 360,131 - 451,824 Other current liabilities 382,116 160,770 - 542,886 ------------ ------------ ------------ ------------ Total current liabilities 473,809 520,901 - 994,710 Long-term debt 440,584 - - 440,584 Other non-current liabilities 235,883 231,367 - 467,250 Common stock of $1 par value 140,764 6,237 (6,237) 140,764 Retained earnings and other shareholders' equity 702,008 839,525 (839,525) 702,008 ------------ ------------ ------------ ------------ Total liabilities and shareholders' equity $ 1,993,048 1,598,030 (845,762) 2,745,316 ============ ============ ============ ============
June 26, 2002 Guarantor Parent Subsidiaries Eliminations Consolidated ------------ ------------ ------------ ------------ Merchandise inventories $ 320,515 742,773 - 1,063,288 Other current assets 387,696 187,322 - 575,018 ------------ ------------ ------------ ------------ Total current assets 708,211 930,095 - 1,638,306 Property, plant and equipment, net 375,029 591,723 - 966,752 Other non-current assets 213,434 119,086 - 332,520 Investments in and advances to/from subsidiaries 900,911 - (900,911) - ------------ ------------ ------------ ------------ Total assets $ 2,197,585 1,640,904 (900,911) 2,937,578 ============ ============ ============ ============ Accounts payable $ 146,128 363,576 - 509,704 Other current liabilities 461,251 138,949 - 600,200 ------------ ------------ ------------ ------------ Total current liabilities 607,379 502,525 - 1,109,904 Long-term debt 540,612 - - 540,612 Other non-current liabilities 237,210 237,468 - 474,678 Common stock of $1 par value 140,592 6,238 (6,238) 140,592 Retained earnings and other shareholders' equity 671,792 894,673 (894,673) 671,792 ------------ ------------ ------------ ------------ Total liabilities and shareholders' equity $ 2,197,585 1,640,904 (900,911) 2,937,578 ============ ============ ============ ============
11 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Dollar amounts in thousands except per share data, unless otherwise noted (N) Guarantor Subsidiaries, continued: WINN-DIXIE STORES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (Amounts in thousands) 12 Weeks ended September 18, 2002 Guarantor Parent Subsidiaries Eliminations Consolidated ------------ ------------ ------------ ------------ Net cash (used in) provided by operating activities $ (104,717) 89,610 - (15,107) ------------ ------------- ------------ ------------ Purchases of property, plant and equipment, net (11,996) (10,274) - (22,270) Decrease (increase) in other assets 52,919 (1,998) (55,149) (4,228) ------------ ------------ ------------ ------------ Net cash provided by (used in) investing activities 40,923 (12,272) (55,149) (26,498) ------------ ------------ ------------ ------------ Principal payments on long-term debt (101,031) - - (101,031) Dividends paid (7,030) - - (7,030) Other 12,836 (68,733) 55,149 (748) ------------ ------------ ------------ ------------ Net cash used in financing activities (95,225) (68,733) 55,149 (108,809) ------------ ------------ ------------ ------------ (Decrease) increase in cash and cash equivalents (159,019) 8,605 - (150,414) Cash and cash equivalents at the beginning of the year 228,981 (1,135) - 227,846 ------------ ------------ ------------ ------------ Cash and cash equivalents at end of the quarter $ 69,962 7,470 - 77,432 ============ ============ ============ ============
12 Weeks ended September 19, 2001 Guarantor Parent Subsidiaries Eliminations Consolidated ------------ ------------ ------------ ------------ Net cash (used in) provided by operating activities $ (133,882) 135,759 - 1,877 ------------ ------------ ------------ ------------ Purchases of property, plant and equipment, net (5,448) (7,397) - (12,845) Decrease (increase) in other assets 122,995 (356) (120,700) 1,939 ------------ ------------ ------------ ------------ Net cash provided by (used in) investing activities 117,547 (7,753) (120,700) (10,906) ------------ ------------ ------------ ------------ Dividends paid (23,894) - - (23,894) Other (11,134) (122,235) 120,700 (12,669) ------------ ------------ ------------ ------------ Net cash used in financing activities (35,028) (122,235) 120,700 (36,563) ------------ ------------ ------------ ------------ (Decrease) increase in cash and cash equivalents (51,363) 5,771 - (45,592) Cash and cash equivalents at the beginning of the year 111,136 9,925 - 121,061 ------------ ------------ ------------ ------------ Cash and cash equivalents at end of the quarter $ 59,773 15,696 - 75,469 ============ ============ ============ ============
The Company allocates all cost incurred by its headquarters, which is not specifically identifiable to each subsidiary, based on its relative size to the Company as a whole. Taxes payable and deferred taxes are obligations of the Company. Expenses related to both current and deferred income taxes are allocated to each subsidiary based on the consolidated Company's effective tax rates. Expenses incurred by the guarantor subsidiaries, if they operated on a stand-alone basis, may or may not have been higher were it not for the benefit derived from related-party transactions and the headquarters functions described above. 12 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Dollar amounts in thousands except per share data, unless otherwise noted (O) Discontinued Operations: On May 6, 2002, the Company announced a formal plan to exit the Texas and Oklahoma operations, which consisted of 71 locations, a dairy plant and a distribution center in Texas and 5 locations in Oklahoma. In addition, seven leases were in effect on stores that were previously closed. The Company decided to discontinue these operations as a result of continued operational losses and reductions in market share. In accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), the Texas and Oklahoma operations are considered components of an entity, which requires the Company to disclose the exit as a discontinued operation. At June 26, 2002, the Company exited these operations, either by sale or abandonment. There was no revenue from discontinued operations for the quarter ended September 18, 2002, compared to gross revenue of $146.3 million for the quarter ended September 19, 2001. A summary of the accruals and loss on disposal of discontinued operations follows: Employee Termination and Lease Other Location Termination Closing Costs Costs Total ---------------- --------------- --------------- Balance at June 26, 2002 $ 9,034 72,401 81,435 Utilization (8,342) (9,570) (17,912) ---------------- --------------- --------------- Balance at September 18, 2002 $ 692 62,831 63,523 ================ =============== ===============
The Company has $14.3 million in held for sale assets relating to the exiting of the Texas and Oklahoma operations. The held for sale assets are reported in the prepaid expenses and other assets section of the Condensed Consolidated Balance Sheet. The held for sale assets consist mainly of land, land improvements, building, leasehold improvements and store and office equipment. (P) Litigation: There are pending against the Company various claims and lawsuits arising in the normal course of business, including suits charging violations of certain civil rights laws and various proceedings arising under federal, state or local regulations protecting the environment. 13 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Dollar amounts in thousands except per share data, unless otherwise noted (P) Litigation, continued: Among the suits charging violations of certain civil rights laws, there are actions that purport to be class actions, and which allege sexual harassment, retaliation and/or a pattern and practice of race-based and gender-based discriminatory treatment of employees and applicants. The plaintiffs seek, among other relief, certification of the suits as proper class actions, declaratory judgment that the Company's practices are unlawful, back pay, front pay, benefits and other compensatory damages, punitive damages, injunctive relief and reimbursement of attorneys' fees and costs. The Company is committed to full compliance with all applicable civil rights laws. Consistent with this commitment, the Company has firm and long-standing policies in place prohibiting discrimination and harassment. The Company denies the allegations of the various complaints and is vigorously defending the actions. While the ultimate outcome of litigation cannot be predicted with certainty, in the opinion of management, the ultimate resolution of these actions will not have a material adverse effect on the Company's financial condition or results of operations. (Q) Accounting Pronouncements: Statement of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections" ("SFAS 145"), became effective for the Company July 2002. The adoption of SFAS 145 will require that losses on early extinguishment of debt be included in continuing operations rather than as an extraordinary item. See Note I - Debt. Statement of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"), provides guidance on the recognition and measurement of liabilities for costs associated with exit or disposal activities. The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002. The Company is currently reviewing SFAS 146 to determine the impact upon adoption. 14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This analysis should be read in conjunction with the Condensed Consolidated Financial Statements. Results of Operations Continuing Operations. Sales for the 12 weeks ended September 18, 2002, were $2.8 billion, an increase of $25.0 million or 0.9% compared with the same quarter last year. Identical store sales, which include enlargements and exclude the sales from stores that opened or closed during the period, increased 2.0% for the quarter. Comparable store sales, which include replacement stores, increased 2.1% for the quarter. The increase in sales was primarily due to the Company's marketing efforts during the last year, including the "real deal" branding initiative and the Customer Reward Card program. The Company's Customer Reward Card program allows the customer to receive ongoing benefits that include merchandise discounts, automatic entry into various sweepstakes, notification of special events, participation in specialty merchandise clubs, discounts on services provided by select marketing partners and other special incentives. The Customer Reward Card is part of a major initiative to focus on superior customer relationship marketing that reinforces the Company's "real deal" branding initiative. The Customer Reward Card is currently in use in the Company's Alabama, Louisiana, Mississippi and Florida area stores. For the 12 weeks ended September 18, 2002, the Company opened two new stores and closed two existing stores. A total of 1,073 locations were in operation on September 18, 2002, compared to 1,153 on September 19, 2001. During the fourth quarter of fiscal year 2002, the Company closed 76 stores related to discontinued operations. As of September 18, 2002, retail space totaled 47.5 million square feet compared to 51.1 million square feet in the prior year. The Company has three new stores under construction. Gross profit increased $48.2 million for the quarter. As a percentage of sales, gross profit for the current quarter and the corresponding quarter of fiscal 2002 was 28.2% and 26.8%, respectively. Increased gross profit margin is primarily due to improved sales as a result of the Company's marketing initiatives, improvement in procurement and shrink reduction initiatives. 15 Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations, continued: Other operating and administrative expenses increased $43.9 million for the current quarter as compared to the corresponding quarter in fiscal 2002. As a percentage of sales, other operating and administrative expenses for the current quarter and the corresponding quarter of the previous year was 25.8% and 24.5%, respectively. The increase in other operating and administrative expenses for the current quarter was primarily due to an increase in the accrual for profit sharing contributions and an increase in advertising and retail operating expenses in connection with the startup of the Customer Reward Card in Alabama, Louisiana and Mississippi. Rent expense for the quarter on operating leases was $78.2 million, as compared to $77.8 million in the previous year. Interest expense totaled $14.9 million for the current quarter and corresponding quarter in fiscal 2002. Interest expense is primarily interest on long-term and short-term debt and the interest on capital leases. The current quarter interest expense includes $2.6 million of unamortized debt issued costs and a $3.3 million payment to unwind the swap associated with the early extinguishment of debt. Earnings from continuing operations before income taxes were $54.8 million for the current quarter compared to $50.5 million in the corresponding quarter of fiscal 2002. Income taxes have been accrued at an effective tax rate of 36.5% for fiscal 2003 and 38.5% for fiscal 2002. The decline in the effective tax rate is primarily due to the expected utilization of previously unrecognized tax benefits arising from state net operating loss carry forwards. This rate is expected to approximate the effective rate for fiscal year 2003. Net earnings from continuing operations for the current quarter amounted to $34.8 million, or $0.25 per diluted share as compared to $31.1 million, or $0.22 per diluted share for the corresponding quarter of the previous year. The LIFO charge reduced net earnings from continuing operations by $1.9 million, or $0.01 per diluted share in the current quarter compared to $1.8 million, or $0.01 per diluted share in the corresponding quarter of the previous year. During the fourth quarter of fiscal 2002, the Company exited its Texas and Oklahoma operations, which consisted of 76 stores, a distribution center and a dairy plant. Net loss from discontinued operations was $8.7 million, or $.06 per diluted share for quarter ended September 19, 2001. 16 Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Cash and marketable securities amounted to $96.3 million at September 18, 2002 compared to $246.5 million at June 26, 2002. Working capital amounted to $472.3 million at September 18, 2002, compared to $528.4 million at June 26, 2002. Cash decreased due to a $100.0 million prepayment on the six-year term loan and a payment of $52.0 million to the Internal Revenue Service in the current quarter (See Note I - Debt and Note J - Income Taxes). The prepayment of debt was funded from cash from operating activities. During the current quarter, excess cash was invested in highly liquid overnight investments with an average interest rate received of approximately 2.0%. Net cash (used in) provided by operating activities amounted to $(15.1) million for the 12 weeks ended September 18, 2002, compared to $1.9 million in the previous year. The increase in net cash used in operations is largely due to a $52.0 million payment to the Internal Revenue Service and partially offset by an increase in earnings and a smaller decrease in accounts payables. Excluding the $52.0 million payment to the Internal Revenue Service, cash provided by operating activities would have increased to $36.9 million in the current quarter. Net cash used in investing activities was $26.5 million for the 12 weeks ended September 18, 2002, compared to $10.9 million in the previous year. The change was primarily due to an increase in capital expenditures. Capital expenditures for the current quarter totaled $22.3 million compared to $12.8 million for the corresponding quarter of fiscal 2002. The Company estimated that total capital investment in Company retail and support facilities, including operating leases, will be $235.0 million in fiscal 2003. The Company has no material construction or purchase commitments outstanding as of September 18, 2002. Net cash used in financing activities was $108.8 million for the 12 weeks ended September 18, 2002, compared to $36.6 million in the previous year. In the current year, the Company prepaid $100.0 million on the six-year term loan and reduced dividend payments. The Company is a party to various proceedings arising under federal, state and local regulations protecting the environment. Management is of the opinion that any liability, which might result from any such proceedings, will not have a material adverse effect on the Company's consolidated earnings or financial position. Impact of Inflation The Company's primary costs, inventory and labor, increase with inflation. Recovery of these costs must come from improved operating efficiencies, and to the extent permitted by our competition, through improved gross profit margins. 17 Management's Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies The Condensed Consolidated Financial Statements and Notes to Condensed Consolidated Financial Statements contain information that is pertinent to Management's Discussion and Analysis. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment based on various assumptions and other factors such as historical experience, current and expected economic conditions, and in some cases, actuarial calculations. The Company constantly reviews these significant factors and makes adjustments where facts and circumstances dictate. Historically, actual results have not significantly deviated from estimated results determined using the factors described above. The following is a discussion of the accounting policies considered to be most critical to the Company. These accounting policies are both most important to the portrayal of the Company's financial condition and results, and require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Self-insurance reserves. It is the Company's policy to self-insure for certain insurable risks consisting primarily of physical loss to property, business interruptions, workers' compensation, comprehensive general and auto liability. Insurance coverage is obtained for catastrophic property and casualty exposures as well as those risks required to be insured by law or contract. Based on an independent actuary's estimate of the aggregate liability for claims incurred, a provision for claims under the self-insured program is recorded and revised annually. The actuarial estimates are subject to uncertainty from various sources, including changes in claim reporting patterns, claim settlement patterns, judicial decisions, legislation, and economic conditions. Although the Company believes that the actuarial estimates are reasonable, significant differences related to the items noted above could materially affect the Company's self-insurance obligations and future expense. Long-lived assets. The Company periodically evaluates the period of depreciation or amortization for long-lived assets to determine whether current circumstances warrant revised estimates of useful lives. The Company reviews its property, plant and equipment for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Recoverability is measured by a comparison of the carrying amount to the net undiscounted cash flows expected to be generated by the asset. An impairment loss would be recorded for the excess of net book value over the fair value of the asset impaired. The fair value is estimated based on expected discounted future cash flows. With respect to owned property and equipment associated with closed stores, the value of the property and equipment is adjusted to reflect recoverable values based on the Company's prior history of disposing of similar assets and current economic conditions. 18 Management's Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies, continued: Long-lived assets, continued. The results of impairment tests are subject to management's estimates and assumptions of projected cash flows and operating results. The Company believes that, based on current conditions, materially different reported results are not likely to result from long-lived asset impairments. However, a change in assumptions or market conditions could result in a change in estimated future cash flows and the likelihood of materially different reported results. Intangible assets and goodwill. In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets." SFAS 142 requires companies to cease amortizing goodwill that existed at the time of adoption and establish a new method for testing goodwill for impairment on an annual basis at the reporting unit level (or an interim basis if an event occurs that might reduce the fair value of a reporting unit below its carrying value). The Company has determined that it is contained within one reporting unit and, as such, impairment is tested at the company level. SFAS 142 also requires that an identifiable intangible asset that is determined to have an indefinite useful economic life not be amortized, but separately tested for impairment using a fair value based approach. The evaluation of goodwill and intangibles with indefinite useful lives for impairment requires management to use significant judgments and estimates including, but not limited to, projected future revenue and cash flows. The Company believes that, based on current conditions, materially different reported results are not likely to result from goodwill and intangible impairments. However, a change in assumptions or market conditions could result in a change in estimated future cash flows and the likelihood of materially different reported results. Store closing costs. The Company provides for closed store liabilities relating to the estimated post-closing lease liabilities and other related exit costs associated with the store closing commitments. The closed store liabilities are usually paid over the lease terms associated with the closed stores having remaining terms ranging from one to 20 years. The Company estimates the lease liabilities, net of estimated sublease income only to the extent of the liability, using a discount rate based on long-term rates with a remaining lease term based on an estimated disposition date to calculate the present value of the anticipated rent payments on closed stores. Other exit costs include estimated real estate taxes, common area maintenance, insurance and utility costs to be incurred after the store closes over the anticipated lease term. Store closings are generally completed within one year after the decision to close. Adjustments to closed store liabilities and other exit costs primarily relate to changes in subtenants and actual exit costs differing from original estimates. Adjustments are made for changes in estimates in the period in which the change becomes known. Any excess accrued store closing liability remaining upon settlement of the obligation is reversed to income in the period that such settlement is determined. Inventory write-downs, if any, in connection with store closings, are classified in cost of sales. Costs to transfer inventory and equipment from closed stores are expensed as incurred. Severance costs are rarely incurred in connection with ordinary store closings. 19 Management's Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies, continued: Store closing costs, continued. Store closing liabilities are reviewed quarterly and adjusted to ensure that any accrued amount is properly stated. Although the Company believes that the estimates used are reasonable, significant differences related to the items noted above or a change in market conditions could materially affect the Company's reserve for store closing obligations and future expense. COLI litigation. The Company was a party to litigation arising from its interpretation of certain provisions of the U.S. tax code. The Company received an unfavorable court decision related to the deduction of interest expense on Company Owned Life Insurance (COLI). Appeals have been unsuccessful in reversing the decision. The Company has recorded a reserve based on consultations with outside legal counsel and historical negotiations of similar cases. See Note J - Income Taxes for further discussion. The Company has and will continue to negotiate the ultimate settlement of this matter. There are uncertainties in any litigation of this nature and the ultimate settlement could vary from the amounts recorded in the Consolidated Financial Statements. While the ultimate outcome of this matter cannot be predicted with certainty, in the opinion of management, the ultimate resolution of this matter will not have any additional material adverse impact on the Company's financial condition or results of operations. 20 Management's Discussion and Analysis of Financial Condition and Results of Operations Cautionary Statement Regarding Forward-Looking Information and Statements This Form 10-Q contains certain information that constitutes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve certain risks and uncertainties. Actual results may differ materially from the results described in the forward-looking statements. Factors that may cause actual results to differ materially from those projected include, but are not limited to: o the Company's ability to achieve the benefits contemplated from the various operational changes being implemented by management; o heightened competition, including specifically the intensification of price competition, the entry of new competitors, or the expansion of existing competitors in one or more operating regions; o changes in federal, state or local legislation or regulations affecting food manufacturing, food distribution, or food retailing, including environmental compliance; o the possible impact of changes in the ratings assigned to the Company's debt instruments by nationally recognized rating agencies; and o general business and economic conditions in the Company's operating regions, including conditions arising from the current state of the economy generally, the recent stock market decline, the rate of inflation/deflation, changes in population, consumer demands and spending, and the availability of new employees. Please refer to discussions of these and other factors in this Form 10-Q and other Company filings with the Securities and Exchange Commission. The Company disclaims any intent or obligation to revise or update publicly these forward-looking statements, whether as a result of new information, future events or otherwise. Readers are cautioned not to place undue reliance on these forward-looking statements. 21 Item 3. Quantitative and Qualitative Disclosures About Market Risk Cash Flow Hedge: The Company has outstanding a $145 million six-year term loan with a variable interest rate based on the one-month LIBOR. The Company utilizes derivative financial instruments to reduce its exposure to market risk from changes in interest rates. The instruments primarily used to mitigate the risk are interest rate swaps. The derivative instruments held on the $145 million six-year term loan are designated as highly effective cash flow hedges of interest rate risk on variable rate debt and, accordingly, the change in fair value of these instruments is recorded as a component of other comprehensive income. On July 26, 2002, the Company unwound the swap with a notional amount of $150.0 million and a maturity of March 29, 2003. The swap was unwound in conjunction with the $100.0 million pay down of the related debt on July 29, 2002. The Company has remaining one interest rate swap agreement with a notional amount of $100.0 million to hedge the interest rate risk associated with the $145 million outstanding in variable rate debt. The notional amount does not represent a measure of exposure to the Company. The interest rate swap agreement matures on March 29, 2004. The Company will pay the counterparty interest at a fixed rate of 5.03% and the counterparty will pay the Company interest at a variable rate equal to the one-month LIBOR (1.82% as of September 18, 2002). The Company is exposed to credit-related losses in the event of nonperformance by counterparties to these financial instruments. However, counterparties to these agreements are major financial institutions and the risk of loss due to nonperformance is considered by management to be minimal. The Company does not hold or issue interest rate swaps for trading purposes. The fair value of the Company's interest rate swap is obtained from dealer quotes. This value represents the estimated amount the Company would receive or pay to terminate the agreement, taking into consideration the difference between the contract rate of interest and rates currently quoted for agreements of similar terms and maturities. At September 18, 2002, the fair value of the Company's interest rate swap resulted in an unrealized loss of $4.5 million ($2.8 million after tax). The Company recorded the unrealized loss in accumulated other comprehensive income in shareholders' equity. During the next 12 months, the Company will incur interest expense, including the effect of the interest rate swap, at a weighted average rate of 6.79% on the $145 million outstanding in variable rate debt. The Company measures effectiveness by the ability of the interest rate swap to offset cash flows associated with changes in the one-month LIBOR. To the extent that this contract is not considered effective, any changes in fair value relating to the ineffective portion will be immediately recognized in income. However, the contract was effective during the period and no gain or loss was reported in earnings. 22 Quantitative and Qualitative Disclosures About Market Risk Fair Value Hedge: In addition to the interest rate swap for the six-year term loan, on August 2, 2002, the Company reentered into interest rate swap agreements in which the Company effectively exchanged the $300 million fixed rate 8.875% interest on the senior notes for two variable rates in the notional amount of $200 and $100 million at six-month LIBOR plus 428 and 424 basis points, respectively. The Company received $7.4 million on the initial swaps, to be amortized over the remaining life of the bond as an offset to interest expense. The variable interest rates, which are based on six-month LIBOR, are fixed semiannually on the first day of April and October. The six-month LIBOR rate was 2.341% on April 1, 2002. The maturity dates of the interest rate swap agreements match those of the underlying debt. In accordance with SFAS 133, the Company designated the interest rate swap agreements on the senior notes as perfectly effective fair value hedges and, accordingly, uses the short-cut method of evaluating effectiveness. As permitted by the short-cut method, the change in fair value of the interest rate swaps will be reflected in earnings and an equivalent amount will be reflected as a change in the carrying value of the swaps, with an offset to earnings. There is no ineffectiveness to be recorded. On April 1, 2002, the Company decreased the fair value of the 8.875% senior notes by $4.1 million and recorded the corresponding interest rate swap liability of $4.1 million in the other liabilities section of the Consolidated Balance Sheets. The Company's objectives for entering into these swaps were to reduce the Company's exposure to changes in the fair value of the debt and to obtain variable rate financing at an attractive cost. The swaps effectively converted the fixed-rate debt to a floating rate. The agreement involves receipt of fixed rate amounts in exchange for floating rate interest payments over the life of the agreement without an exchange of the underlying principal amount. The Company is exposed to credit-related losses in the event of nonperformance by counterparties to these financial instruments. However, counterparties to these agreements are major financial institutions and the risk of loss due to nonperformance is considered by management to be minimal. The Company does not hold or issue interest rate swaps for trading purposes. 23 Quantitative and Qualitative Disclosures About Market Risk The following table presents the future principal cash flows and weighted-average interest rates expected on the Company's existing long-term debt instruments and interest rate swap agreements. Fair values have been determined based on quoted market prices as of September 18, 2002. Expected Maturity Date ---------------------- (Dollar amounts in thousands) 2003 2004 2005 2006 2007 Thereafter Total Fair Value ---- ---- ---- ---- ---- ---------- ----- ---------- Liabilities: Long-term debt Fixed Rate $ 286 283 279 276 279 300,000 $301,403 $ 306,233 Average interest rate 9.40% 9.40% 9.40% 9.40% 9.40% 8.88% 8.88% Variable Rate $1,450 1,450 1,450 1,450 139,200 - $145,000 $ 145,000 Average interest rate 4.63% 5.43% 6.32% 6.88% 7.33% - 7.27% Interest rate derivatives Interest rate swaps: Variable to Fixed $ - 100,000 - - - - $100,000 $ (4,454) Average pay rate - 5.03% - - - - 5.03% Average receive rate - 2.68% - - - - 2.68% Fixed to Variable $ - - - - - 300,000 $300,000 $ (4,083) Average pay rate - - - - - 9.33% 9.33% Average receive rate - - - - - 8.88% 8.88%
24 Item 4. Controls and Procedures As required by Rule 13a-15 under the Exchange Act, within the 90 days prior to the filing date of this report, the Company carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of the Company's management, including the Company's President and Chief Executive Officer along with the Company's Chief Financial Officer. Based upon that evaluation, the Company's President and Chief Executive Officer along with the Company's Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective. There have been no significant changes in the Company's internal controls or in other factors, which could significantly affect internal controls subsequent to the date the Company carried out its evaluation. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company's Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure. 25 WINN-DIXIE STORES, INC. AND SUBSIDIARIES Part II - Other Information Item 1. Legal Proceedings See Note P - Litigation of the Notes to Condensed Consolidated Financial Statements, included herein, regarding various claims and lawsuits pending against the Company. Item 2. Changes in Securities and Use of Proceeds Not applicable. Item 3. Defaults Upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders (a) The 2002 Annual Meeting of Shareholders of the Company took place on October 9, 2002. (b) Three matters were submitted to a vote at the meeting: 1. The election of two Class III directors for terms expiring in 2005; 2. Ratification of the appointment by the board of directors of the company of KPMG LLP as auditors of the company for the fiscal year commencing June 27, 2002; 3. To consider and act upon a shareholder proposal, which management opposes; With respect to the election of Director, the votes were as follows: Class III, for terms Shares expiring in 2005 Shares for Withheld ---------------------------------------------------- John H. Dasburg 119,332,281 2,762,809 Julia B. North 119,424,981 2,670,109 With respect to the appointment of KPMG LLP as auditors of the Company for the fiscal year commencing June 27, 2002, the vote was: 119,089,802 shares for; 2,062,802 shares against; 942,486 shares abstained. With respect to consider and act upon a shareholder proposal, the vote was: 5,899,076 shares for; 99,176,607 shares against; 1,808,819 shares abstained. There were 15,210,588 broker non-votes. 26 WINN-DIXIE STORES, INC. AND SUBSIDIARIES Item 5. Other Information John H. Dasburg, Chairman, President and Chief Executive Officer of Burger King Corporation, was elected to the Board of Directors on August 7, 2002. Dennis A. Hanley, formerly the Director of Retail Operations of Woolworth's New Zealand Limited, was elected as Vice President of Produce and Floral Merchandising effective July 29, 2002. August B. Toscano, Senior Vice President, Human Resources resigned from the Company effective September 17, 2002. Karen E. Salem, formerly Senior Vice President and Chief Information Officer of Corning Cable Systems, was elected as Senior Vice President and Chief Information Officer effective September 18, 2002. Laurence B. Appel, formerly Senior Vice President Legal, of The Home Depot, was elected as Senior Vice President and General Counsel on September 30, 2002. Joel B. Barton, formerly Executive Vice President of Merchandising and Marketing, and President of Retail Stores for Spartan Stores, Inc., was elected Vice President and Division Manager of the Charlotte Division effective September 27, 2002. John E. Anderson, President and Chief Executive Officer of Patriot Transportation Holdings, Inc., was elected to the Board of Directors on October 9, 2002. Stephen T. deRiesthal, formerly Regional Director of Real Estate, was elected Vice President of Real Estate effective September 23, 2002. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 99.1 Written Statement of the Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350. 99.2 Written Statement of the Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350. (b) Reports on Form 8-K Not applicable 27 WINN-DIXIE STORES, INC. AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WINN-DIXIE STORES, INC. Date: October 9, 2002 /S/ RICHARD P. MC COOK ---------------------------------- Richard P. McCook Senior Vice President and Chief Financial Officer Date: October 9, 2002 /S/ D. MICHAEL BYRUM ------------------------------------ D. Michael Byrum Vice President, Corporate Controller and Chief Accounting Officer 28 WINN-DIXIE STORES, INC. AND SUBSIDIARIES CERTIFICATIONS I, Allen R. Rowland, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Winn-Dixie Stores, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors: a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: October 9, 2002 By: /S/ Allen R. Rowland ---------------- Allen R. Rowland President and Chief Operating Officer 29 WINN-DIXIE STORES, INC. AND SUBSIDIARIES CERTIFICATIONS I, Richard P. McCook, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Winn-Dixie Stores, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors: (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: October 9, 2002 By:/S/ Richard P. McCook ----------------- Richard P. McCook Senior Vice President and Chief Financial Officer 30 EX-99 3 ex991.txt WRITTEN STATEMENT OF THE CEO - EX 99.1 Exhibit 99.1 Written Statement of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 Solely for the purposes of complying with 18 U.S.C. Section 1350, I, the undersigned President and Chief Executive Officer of Winn-Dixie Stores, Inc. (the "Company"), hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended September 18, 2002 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Allen R. Rowland --------------------------------- Allen R. Rowland October 9, 2002 EX-99 4 ex992.txt WRITTEN STATEMENT OF THE CFO - EX. 99.2 Exhibit 99.2 Written Statement of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 Solely for the purposes of complying with 18 U.S.C. Section 1350, I, the undersigned Senior Vice President and Chief Financial Officer of Winn-Dixie Stores, Inc. (the "Company"), hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended September 18, 2002 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Richard P. McCook --------------------------------- Richard P. McCook October 9, 2002 -----END PRIVACY-ENHANCED MESSAGE-----